Sunday, December 09, 2012

The one chart about oil's future everyone should see

When people read about a long-term forecast of world oil supply--say, out to 2030--they often believe that the forecasters are merely incorporating our knowledge of existing fields and figuring out how much oil can be extracted from them over the forecast period. Nothing could be further from the truth. Much of the forecast supply has not yet been discovered or has no demonstrated technology which can extract or produce it economically. In other words, such forecasts are merely guesses based on the slimmest of evidence.

Perhaps the best ever illustration of this comes from a 2009 presentation made by Glen Sweetnam, a U.S. Energy Information Administration (EIA) official. The EIA is the statistical arm of the U.S. Department of Energy. The following chart from that presentation will upend any notion that we know exactly where all the oil we need to meet expected demand will come from.

The chart shows that by 2030 world output of oil and other liquid fuels from current fields is expected to drop to 43 million barrels per day (mbpd), some 62 million barrels below projected demand of 105 mbpd. (Though prepared in 2009, the chart takes into account known projects expected to be producing by 2012.) This drop is consistent with the observed decline in the worldwide rate of production from existing fields of about 4 percent per year. Certainly, there will be more projects identified in the 18 years ahead. And, many people will say that we already have a large new resource of tight oil (often mistakenly referred to as shale oil) which can be extracted through hydraulic fracturing or fracking. But even if the optimists are correct--and there can be no guarantee that they will be--this source of oil will only add 3 to 4 million barrels of daily production. What Sweetnam's chart tells us is that we must find and bring into production the equivalent of five new Saudi Arabias between now and 2030 in order to meet expected demand even if the volume of tight oil reaches its maximum projected output. (The Saudis currently produce about 11.7 mbpd of oil and other liquids.)

Because Sweetnam's chart is for total worldwide "liquid fuel supply," it's worth noting that in recent years something called natural gas plant liquids (NGPLs) have been included in world oil supply based on the assumption that these hydrocarbons are 100 percent interchangeable with oil. NGPLs are components of natural gas other than methane such as ethane, propane, butane, and pentane, and their production grew recently with the natural gas drilling boom in the United States. Only a small portion of NGPLs can directly substitute for oil, and ramping up production of that portion independently is impossible since it is mixed in the methane.

But oil proper--defined as crude oil including lease condensate--continues to trace out a plateau in production that began in 2005.This makes the oil situation all the more concerning. It is true that rising and ultimately record high oil prices in the last decade have prompted oil companies to increase capital expenditures including those for exploration and drilling to their highest level ever. But, the vast effort represented by those expenditures has failed to boost true crude oil production definitively above the current bumpy plateau.

Some will point to vast deposits of so-called oil shale in the American West and suggest that production from these can fill the gap in the coming years. But right now commercial production of oil from this source is exactly zero. And, current reserves are also exactly zero since reserves are defined as those underground resources that can be produced profitably at today's prices from known fields using existing technology. (For a more detailed discussion, see my recent piece on unconventional oil resources.)

Perhaps most important is that Sweetnam's chart shows not how much oil we must discover, but the rate of flow we must achieve from any discoveries in order to match supply with projected consumption. Huge discoveries mean little if we cannot extract the oil profitably and at rates that are commensurate with our desired rate of consumption. With conventional oil in decline since 2006 according to the International Energy Agency, a consortium of 28 mostly importing nations, we will now be forced to rely increasingly on sources of unconventional oil such as the tar sands of Canada and the heavy oil of Venezuela, both of which are difficult and costly to extract and refine. So far the flows of unconventional oil have only just offset declines in the rate of production of the cheap, easy-to-get, free-flowing conventional oil which has powered modern civilization to date.

The global economy is entirely dependent on continuous flows of energy and raw materials. Oil is absolutely central because it provides one-third of the world's energy and more than 80 percent of its transportation fuel. Unless oil production rises from here, global economic growth will eventually stall (if it hasn't already).

With the EIA projecting oil production from oil shale of 140,000 barrels per day by 2030, we should not expect to close Sweetnam's deficit of 62 mbpd from this source. Even if the EIA is too pessimistic on oil production from oil shale by a factor of 10, such production would barely put a dent in the anticipated supply gap by 2030.

It should be apparent that energy policy around the world is essentially based on the idea that Sweetnam's gap will be filled in time and comfortably. And yet, there can be no assurance of this. In fact, the ongoing plateau in the rate of world oil production in the face of record high prices ought to give us pause. If seven years of very high prices can only marginally move the rate of production of all liquids (which includes crude oil, natural gas plant liquids, biofuels, and refinery processing gains) up about 3.15 percent and if crude oil proper can only stay flat during the same period, how can we expect that the next seven years and the next seven after that will be filled with nothing but good news on supply?

If the answer to this question is that technology will unlock new resources and overcome the declines in existing fields, keep this is mind. If that technology is not on the shelf and ready to deploy today, it will make almost no difference in the 18 years between now and 2030. For those who point to hydraulic fracturing as a recent technological breakthrough, they need to do a little research. Hydraulic fracturing was first used in 1947. More than 30 years later in the early 1980s, building on government research, George Mitchell and his company Mitchell Energy and Development began pursuing natural gas in deep shale deposits. It took Mitchell 20 years of experimentation, government help and government incentives to perfect the type of hydraulic fracturing which is now used to release both natural gas and oil from deep shales. It took another 10 years for his methods to be widely deployed by the oil and gas industry.

So, here's the timeline on hydraulic fracturing. It took 60 years from the time the technique was first deployed until it was refined and widely adopted by the industry for the specific purpose of extracting natural gas and oil from deep shale deposits. Don't look for any new miracle technologies to make a significant difference in oil production between now and 2030 unless they are already in the field performing their magic today and have not yet been widely adopted.

The effects of hydraulic fracturing on oil production are already in evidence. And, while the technique has allowed us to recover oil from previously inaccessible deposits, it has not allowed us to grow oil supplies worldwide as declines in production elsewhere have offset increases in production of oil from shale deposits (properly called tight oil).

With high oil prices and the hottest new technique unable to move the needle on worldwide production of crude oil, we should look at Glen Sweetnam's chart with considerable concern. We should ask ourselves whether it is wise to base energy policy on the fantasies of industry and government forecasters. Perhaps we should focus instead on the trends and data we can verify and prepare ourselves and our economies for a world that may not have the copious amounts of oil that the industry is promising.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum,, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at


Anonymous said...

The chart makes energy supply decline look gradual. Supply chain disruption due to higher prices and energy scarcity, however, will not be. At some point, we can no longer sustain hydrocarbon acquisition as an economic activity. The prices will be too high, and the NET energy return, too low.

Anonymous said...

I'd let those busy-body's over at the UN worry about what MAY happen in the energy markets out past 2032 though I would akin that to crystal balls or predicting the weather. They can't tell me what it's going to do tomorrow, let alone what's something like this out 20 years is going to do. Why worry & bother with the world outlook when it's going to really be the story of the energy have's and the energy have-nots?? The US & Canada are at present two of the energy have's and it looks like that's going to be the story of the next 20 years. How come we can't get a North America centric & relevant view of these energy markets (which I'm sure would look a whole lot better) over the same time frame, instead of these made-to-worry & hard to believe world predictions that seem to be everywhere these days??

Kurt Cobb said...

Anonymous asks whether we can get a North America-centric view of energy and compare. Well, that's actually what much of the news has been about. Citibank, the National Intelligence Council and the International Energy Agency have all been played up in the media as having "predicted" that the United States will become "energy independent."

(For the record, the IEA said the U.S. will become less dependent on oil imports. The NIC said the U.S. might become energy independent. The Citibank group said the U.S. might become energy independent by 2020. The lead author, Ed Morse, said publicly, “We’re intentionally provocative with this piece." In other words, he is using hype to get media attention.)

When the public hears "independent" they think that means "cheap." But oil is a worldwide market and no matter what happens, we in the United States and Canada will continue to pay the world price (adjusted for shipping costs).

The idea that the United States will become energy independent is doubtful given the distance between current consumption of crude oil proper and our production. Production is running at about 6.2 mbpd while consumption consumption is running at about 14 mbpd (once you exclude the gasoline and other products that we export to others which we make from imported oil).

Yes, U.S. production will probably rise from here. But then, given the high decline rates of tight oil wells, we'll reach a maximum and then decline again.

But none of this solves the world dilemma regarding oil and it is world production and consumption which matter since we are all linked in one global system.

While the chart in this piece is a prediction with regard to production from existing fields over time, it is considerably less uncertain than all the boastful predictions based on little evidence about world production over the same time frame.

Historical experience tells us that existing fields worldwide are declining at at least 4 percent per year. And, this chart is based on that historical rate. In that sense, it is a very conservative estimate of decline rates. The cheerleaders for the abundance idea tell us themselves that we will come to rely more and more on resources such a tight oil where well declines rates are currently averaging about 42 percent per year in the Eagle Ford and 38 percent per year in the Bakken, the two main producers of oil from deep shales. That kind of decline rate is going to make sustained large increases in oil production in the United States difficult to maintain.

Yes, the above chart is designed to get people worried. They were told not to worry in 2000 by all these same people and we ended up seeing oil reach beyond $100 a barrel where it stands today in Europe, which represents the true worldwide price and tells us what consumers are actually paying for finished petroleum products. And,these same people did not anticipate that production of crude oil proper would stall out in 2005. We should indeed worry if these people who couldn't get their long-term forecasts right in 2000 are telling us not to worry now.

E Wall said...

Rather than despair about a dystopian future where fuel shortage spell austerity measures that make Greece's economic problems look like nirvana, consider that all new technologies come from science. Because a science has not yet yielded a commercially successful technology does not mean that it will not. LENR (aka "cold fusion) is real science. The researchers are invited to American Chemical Society and American Physical Society meetings regularly to discuss recent experimental results. The results are conclusive. The effects are real.

This is a book comprised of peer-reviewed papers describing LENR results published by Oxford U. Press, sponsored by the American Chemical Society.

Perhaps we should be asking 'cui bono' for the status quo, and who would suffer if the problem is solved. Big money wields a lot of power.

Anonymous said...

So any hopes the Yanks will calm down and be less aggressive are probably in vain.

ewookie said...

it amazes me how people have come to regard science as a magical, benevolent god. science is the accumulation of empirical data. when science predicts doom and gloom lest we change our ways, we run science out of town and proclaim our faith in science-fiction!

buy some arable land, learn to live off it, stockpile enough guns, swords, and ammo to defend it.

there will be no sudden 'collapse'. we are slowly transforming into a feudal society. at the end of the transformation, brought about by growing populations and dwindling resources, we will all be serfs living with only what is necessary to fulfill our jobs for our corporate or communist lord.

Tobia Tesan said...

The idea that resource scarcity is going to make people cooperate in a peaceful way for the common good clashes against human instinct and historical records.


Instead, the rich few will more likely exploit the remaining resource in a more intensive way, then resort to cannibalism.

Oh, no wait, that's basically already happening.

John Doyle said...

I know of one gentleman who is very bullish about algae based oil production.
You do need large areas of land, but it only has to have good solar access, not arable land and it can use waste or salty water.
In his opinion it would amply substitute for all oil fractions adequately.
It would allow for a transitional away from oil to a carbon free renewable.
What's your take?

Anonymous said...

Here we are, 8 years after this article...we are on the edge of the precipice and we are still marching full throtle into it...the oil and gas boom in US is probably peaking as we speak and then this short lived mini Ghawar will fade...and nothing will be the same, aka WAR for OIL.
Cause otherwise going after Iran makes no sense...